Virtual Worlds, Real Litigation

June 1, 2007 – Though the U.S. Supreme Court cut back this week on Americans’ rights to sue for equal pay in the real-world workplace, our rights to sue for wrongs visited upon our imaginary selves in imaginary game worlds made some modestly countervailing gains.

“This has been one of the most important weeks in US virtual-world law in memory, perhaps ever,” says S. Gregory Boyd, an intellectual property attorney and games law expert at Kenyon & Kenyon.

First, in a 46-page ruling handed down Wednesday, U.S. District Judge Eduardo Robreno of Philadelphia allowed a player’s suit against Linden Lab, the maker of the popular online fantasy game Second Life, to go forward. In April 2006 Linden Lab seized Marc Bragg’s virtual property and expelled him from the game for allegedly violating its terms of use by using an “exploit” — a software trick, essentially — to buy virtual land in that world on the cheap. In October 2006 Bragg sued to recover the value of his virtual property, which he estimates at $6,000, as well as about $2,000 in U.S. currency that he had in a game-related account controlled by Linden Lab. “While the property and the world where it is found are ‘virtual,’” Judge Robreno wrote, “the dispute is real.” Though the game’s Terms of Use (i.e., the contract to which the user clicks his agreement before starting the game) required that such disputes be handled by arbitration in San Francisco, the judge found those arbitration provisions to be “unconscionable.” This was so, Judge Robreno found, even though Linden Lab offered to move the arbitration to Philadelphia and pay all of Bragg’s upfront fees. It was so, moreover, even though Bragg, who is himself a lawyer, might have seemed unusually well situated to understand the meaning of the Terms of Use.

Then, on the same day that the Bragg ruling came down, a player of Blizzard Entertainment’s wildly popular subscription-based online game, World of Warcraft, filed a nationwide federal class-action suit in Miami, Florida, against a company known as IGE (formerly International Gaming Entertainment). (Blizzard is a unit of Vivendi (VIVEF.PK).) IGE is in the business of facilitating so-called “real-money trade”; that is, it runs online exchanges where players of online games, including World of Warcraft, can buy and sell virtual currency and trinkets that have value in a particular game in exchange for real money, even though such transactions are typically forbidden by most games’ Terms of Use agreements. Plaintiff Antonio Hernandez, represented by G. Richard Newsome of Orlando, Florida, maintains that real money trade causes “pollution and interruption of the fantasy Subscribers paid for.” He alleges that IGE’s low-paid contract laborers in Southeast Asia “strip out scarce and limited virtual world resources,” devalue the in-game currency, and effectively put “honest” players at a disadvantage vis-a-vis unscrupulous ones. Hernandez says he spent more than $50 on the World of Warcraft software, more than $50 on its “Burning Crusade” expansion upgrade, and $15 per month in subscription fees. (World of Warcraft, which launched in North America in November 2004, is probably the most successful so-called “massively multiplayer online role-playing game” (MMORPG) ever marketed, with, currently, an estimated 8.5 million subscribers worldwide, according to Blizzard.)

Defendants IGE and Linden Labs each declined comment on the case against it, stating that it does not comment on pending litigation.

I have written before on the subject of real money trade in virtual worlds, both in a November 2005 Fortune feature story (”From Megs to Riches”), available here, and in a November 27, 2006 blog posting, available here, about the “Anshe Chung,” who is believed to be the first person to accumulate $1 million worth of real value entirely through machinations inside an online world (Second Life).

While some worlds, like Second Life, permit and facilitate real money trade, most, like World of Warcraft, forbid it. Still others, like Sony Online Entertainment’s EverQuest, have attempted to offer subscribers the choice of operating in versions of the world where it is permitted and other versions where it isn’t. (SOE is ultimately owned by Sony (SNE).)

Legally and factually, the more interesting of the two cases is the Hernandez class action. IGE has previously defended its business model by saying that it does not violate any game’s Terms of Use, because its employees do not play the games themselves, and, therefore, never enter into those so-called “click-through agreements.” IGE merely brokers trades between people that do play the game.

In the suit, however, Hernandez alleges that IGE, which is based in Hong Kong but has offices in Miami, Boca Raton, and Beverly Hills, is much more than a mere broker. In World of Warcraft, players can earn in-game currency, called gold, and other virtual items that bestow in-game powers or status by performing certain feats. The complaint alleges that IGE contracts with “hundreds” of “gold farmers” who are “often citizens of developing third world countries who spend up to 14 hours per day, or more, logged onto World of Warcraft collecting resources and World of Warcraft gold.” (Best story I’ve seen on the phenomenon of gold farming in China is a December 2005 New York Times article, available here.) Hernandez’s complaint claims that the IGE’s gold farmers use accounts that “are paid for, or controlled, directly or indirectly,” by IGE. He then accuses IGE of acting in a conspiracy with those gold farmers in ways that violate the consumer protection laws of Florida and the other 49 states, D.C., and Puerto Rico, which generally forbid “unlawful, unfair, unconscionable, deceptive and fraudulent business practices.”

Boyd, of Kenyon & Kenyon, says its hard to comment on the Hernandez case at such an early stage, but does say this: “Traditionally, the players have been harmed by this type of activity and not really had a voice against the people ruining the economies and diminishing the game play experience. Hopefully, this type of legal action will give them that voice.”